Key Investment Perspectives: April 2020
Unprecedented shutdown orders, soaring unemployment, broken supply chains, struggling businesses, a rising human cost: The spread of COVID-19 is presenting the global financial market with one of its largest-ever challenges. Record fiscal and monetary stimulus packages around the world have been enacted to combat business disruptions, credit market seizures, and the abandonment of risk assets by investors fleeing to cash.
When volatility increases, many investors tend to make panicked decisions, falling victim to behavioral biases that can be identified but difficult to avoid. In this issue, we discuss these biases and their costs to investors in the long run. Importantly, we address the mechanisms that are in place to provide stability and allow the world economy to restart itself after the shutdown.
In addition, this issue includes a summary of the performance of major asset classes in March and our current tactical asset allocation positions.
- Global Equities: Large cap equities were down by as much as 23.2% on March 20 before rebounding by the end of the month to record a loss of 13.2%. Posting a decline for the month of almost 22%, small cap stocks fared worse, while growth equities outperformed value stocks. Developed international equity markets retreated by 14.4% during March, while emerging market equities fell 16.6%.
- Fixed Income: Continuing to be a safe haven, US Treasuries returned 2.9% for the month and are now up 8.2% for the year. Declining 7.1% during March as spreads widened, investment-grade corporates had a difficult month, while high-yield corporate debt lost 11.5%.
- Tactical Allocation: During this past month, our Dynamic Allocation Research Tool's (DART) view on stocks declined. Accordingly, we recommend a modest underweight to equities and we prefer high-quality companies and lower-volatility stocks. We also recommend a neutral allocation to fixed income and we now favor high quality investment grade corporate bonds over treasuries. We continue to believe that alternatives, for the right clients, can provide valuable diversification benefits to a portfolio.